Detecting Endogenous Effects by Aggregate Distributions: A Case of Lumpy Investments
AbstractThis paper studies the effect of strategic complementarity among firms' lumpy investments on the fluctuations of aggregate investments. We investigate an extensive panel data set on Italian manufacturing firms. We first show that the fluctuations of fraction of firms that experience large investment rates in a region-year follow a double-exponential distribution. We then estimate the degree of the strategic complementarity within a region directly by estimating the firm's decision on lumpy investments. We propose a simple sectoral model which is capable of generating the double-exponential distribution for the aggregate fluctuations that arise from the strategic complementarity among firms' lumpy investments. We argue that the shape and magnitude of the aggregate fluctuations observed in the data are consistent with the degree of strategic complementarity estimated at the micro-level in the same data.
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Bibliographic InfoPaper provided by Institute of Innovation Research, Hitotsubashi University in its series IIR Working Paper with number 09-03.
Length: 29 p.
Date of creation: May 2009
Date of revision:
Strategic complementarity; endogenous effect; non-Gaussian fluctuations;
Find related papers by JEL classification:
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
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